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Major domestic equity benchmarks drifted sideways with a downward bias for most of yesterday as bullish momentum failed to catch on given the mixed data releases on the day; weekly jobless claims came in at 305,000 compared to last week’s reading of 327,000, although pending home sales dipped 1.6% compared to last month’s contraction of 1.4% [see 3 ETF Trades To Make Before The Congress Showdown].

Our ETF chart to watch for the day is the State Street Consumer Discretionary Select Sector SPDR (XLY, A), which may experience volatile trading as investors digest a number of data releases about the health of the U.S. consumer. Analysts are expecting for personal income to post an increase of 0.4% compared to last month’s reading of 0.1%, while the consumer spending figure is expected to post an increase of 0.3% compared to last month’s reading of 0.1%.

Chart Analysis

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Consider XLY’s one-year daily performance chart below. This sector ETF has been steadily climbing within a fairly well-defined, upward-sloping channel since rebounding off its 200-day moving average (yellow line) in November of 2012; since then, XLY has endured a number of fairly predicable corrections after each instance of grinding along its upper-resistance boundary for an extended period of time. Likewise, this ETF has been able to rebound off its lower-support boundary on a number of instances as well, although its two most recent corrections suggest otherwise. Notice how in late June and late August of this year XLY sank underneath its lower-support boundary, although it still managed to resume its uptrend in the weeks following [see How To Take Profits And Cut Losses When Trading ETFs].

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With XLY losing steam well before it neared its upper-resistance boundary this time around, we feel that the longer-term channel at hand needs adjusting; more specifically, the upper-resistance boundary needs to be lowered seeing as how the recent rally was weaker than the rebound seen in July, and the one before that in May. Despite the concerns over its trading channel, XLY is still in a very strong uptrend, and as such, we do not advise conservative investors to take on short positions here [see How To Be A Better Bear: Short Selling vs. Inverse ETFs?]

Outlook

If the latest string of consumer data strikes an optimistic tone with investors, XLY should continue its rebound; in terms of upside, this ETF has upcoming resistance at $62 a share. On the other hand, concerning data regarding the health of the U.S. consumer can inspire broad-based profit taking pressures; in terms of downside, XLY has immediate support at $60 a share followed by the $58 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.